Emerging Economies Position Themselves for Safety, U.S. Dithers

As Americans buy bagels and lattes, emerging economies are buying silver and gold!
Most Americans are easily led. And over a cliff they are going, in big numbers. But there is still time to not join them by understanding what much of the rest of the world is doing to protect the value of their wealth. That, in a nutshell, is a core mission of my must-read monthly newsletter, Independent Living.
Since the Civil War, we’ve been fortunate to avoid living through anything as devastating as a currency collapse, hyperinflation, or even widespread social upheaval on our soil. However, this extended stability has led Americans to lose some of their natural financial instincts when it comes appreciating the value and importance of gold and silver.
Why Even Smart People Are Losing Their Shirts in This Economy
Put another way, even really smart people are ill-equipped to understand the perfect storm of corrective market forces which are bringing to an end the easy-money madness which has underpinned our bubble economy for two decades.
If you’ve spoken to your broker about precious metals, you have almost certainly encountered resistance, skepticism, and possibly ridicule. It is the price of being ahead of the curve and apart from the herd. It isn’t easy to question the dollar-centric mentality permeating the establishment media, including CNBC and Fortune magazine, among many influential opinion shaping outlets. But you absolutely must. And soon.
What these “sources” won’t tell you is something important that former Fed Chairman Alan Greenspan said way back in 1966:
“The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
Despite this timeless truth and the record-setting sales of gold and silver coins, bars, and rounds, most Americans don’t even own so much as one piece of bullion. Precious metals are in a long-term bull market, and the effects of government debt and money printing by the Fed and other central banks make gold and silver prudent growth vehicles – as well as reliable stores of wealth.
Gold is the hedge against political uncertainty and government DEFAULT. – Martin Armstrong
While the Fed tinkers, “manages,” manipulates, borrows, and prints more fiat currency units, emerging-market economies replace foreign reserves (the chief of which is the U.S. dollar) with solid gold.
  • Mexico – This country quietly bought nearly 100 tons of gold this past February and March, which is almost equivalent to 3.5 percent of world mining output.
  • Thailand – Just last year, it was estimated that Thailand’s July gold imports were 13 times higher than June 2010 imports.
Respected investment advisor Puru Saxena noted from Hong Kong last month that Chinese policymakers are in the process of setting up huge investment funds to acquire precious metals.
Today, central banks are net buyers of gold after nearly 20 years of heavy selling and this is helping raise the value of gold. In addition, according to Sunil Kashyap, of Scotia Mocatta, Scotia Bank’s metals trading arm, “The share of pure investment driven physical gold consumption is estimated to have grown three fold from less than 10 per cent to over 30 per cent in the last decade.
The Move to Precious Metals is a Global Phenomenon Most Americans Are Still Missing
Unlike America, many emerging markets have direct experience with or recent memory of hyperinflation and unstable economies. This leads them to trust, hold, and demand precious metals over paper currency units.
  • Vietnam – It had no choice but to reverse an unpopular gold policy that banned gold imports and closed gold trading floors. The ban led to the growth of an underground gold market, which inflated premiums over global prices.
  • Turkey – Gold has a long tradition as both an investment and cherished gift. Even today in many rural and traditional areas, gold dealers are the center of the financial world, not bankers.

    Ahmet Akamak, a former Turkish banker who now runs a network of gold shops, says many of his old banking customers only used banks to rent safe deposit boxes to store their gold. In an attempt to bring under-the-mattress money into the Turkish financial system local banks have begun to offer creative solutions such as gold deposit accounts, gold exchange traded funds, and even ATMs that dispense gold coins.
  • China – According to the World Gold Council (WGC) Chinese investors bought 55 percent more gold coins, bars, and medallions in the first quarter of 2011 compared to the first quarter of 2010. Inflation concerns being the driver.

    Chinese investors are turning to gold to protect savings against sharply rising prices. Bloomberg states up to 80 percent of imported gold was turned into mini gold bars for retail sale.
  • India – India has a strong cultural connection to gold. “Families have been doing this for generations and it has proven to be the most secure form of investment possible for most of them,” says Seyur Shah, associate director at WGC in Mumbai.

    The World Gold Council reports India’s consumer demand grew 66 percent last year. In addition, silver’s rise makes it an interesting investment for increasing numbers of Indians looking for new opportunities in precious metals. “I will buy whatever gives me the best return,” said Abha Kachaliya a 20-something-year-old accountant talking about a recent silver purchase.
David Morgan, editor of our publication Money, Metals, and Mining, said recently that it seems today’s price action in the metals is moved more and more by the real physical stuff than the paper derivatives based on gold and silver.
In the 3,000+ years of the history of money, there has never been a situation in which we have a 100% global fiat currency system. In the short 40 years since the world’s first global money system tied only to government printing presses was born, an ocean of debt and false wealth has been created and is only now falling apart. No wonder even establishmentarian sources of news such as Forbes magazine predict that a new global gold standard is needed and coming!
History teaches that when an economy goes though turmoil or its currency is debased, precious metals like gold and silver offer some of the strongest long-term protection around.
For instance, Oguzhan Aloglu, vice president of the Istanbul Gold Exchange (IAB) estimates people in Turkey own nearly 5,000 tons of gold, much of it dating back to the time of the Ottoman Empire. It’s believed Taiwan’s approximately 474.30 tons of gold came directly from mainland China when Chiang Kai-shek and his Kuomintang Party lost the civil war with the communists and moved China’s entire gold reserves to Taiwan.
As the dollar and euro continue to face economic and currency pressures and their countries deal with deteriorating social and political climates, it’s important to learn from your neighbors in emerging markets about building and maintaining a meaningful position in silver and gold to protect your wealth.
It is a lesson that more Americans are thankfully learning as days go by.